Bloomberg Intelligence cryptocurrency market analyst Jamie Coutts suggested that investors will soon start transferring their traditional bond investments to Bitcoin (BTC) due to a single significant factor. Here are critical remarks from the senior analyst!
Jamie Coutts stated that Bitcoin outperforms bonds against the depreciation of the US dollar. The performance of bonds and other cryptocurrencies like Bitcoin against the US “M2” money supply, consisting of cash, personal savings, and market accounts accessible to consumers, was examined. The analyst stated the following:
And if investors want to hedge against monetary depreciation, bonds are not usually the place to go in most time periods. If you substitute any money aggregate for the denominator, you get the same results. Here I am using US M2.
According to senior analyst Jamie Coutts, traditional investment portfolios could have performed better with just a small percentage of Bitcoin at the expense of bonds over the past seven years. The expert said the following:
In the coming years, investors may consider turning to better inflation hedge measures. BTC is an obvious choice. We can see a scenario where Bitcoin will start to infiltrate global portfolios at the expense of bonds in the coming years. A small allocation demonstrates its ability to assist a diversified portfolio adjusted for all return and risk measures. We ran simulations for the traditional 60/40 portfolio (US stocks and bonds) as a comparison point and compared it to our own 60/39/1 portfolio, which includes 1% Bitcoin excluding bonds. This situation shows an excess return of 10.58% (1.32% annualized) during the test period (2015-2022). The most notable is the increase in risk-adjusted returns: the Sharpe ratio rises from 0.604 to 0.664 while the maximum drawdown remains largely unchanged. Although an improvement, the 60/39/1 still underperformed the level of value decay in M2 by 4%.
The expert addressing Bitcoin and altcoins highlighted the following as solutions to the mentioned issues:
The solution to this situation is that BTC volatility has somewhat decreased while other assets have risen. Looking back, holding a BTC position of the appropriate size throughout the entire cycle/cycles has resulted in risk-adjusted returns. Allocations could come from bonds in the coming years.